• Gunnery Control and Norbert Wiener

• "The world, understood cybernetically, was a world of goal-oriented feedback mechanisms with learning. Cybernetics,then, took computer-controlled gun control and layered it in an ontologically indiscriminate fashion across the academic disciplinary board."

• Gunnery Control and Jay Forrester

• Less than fully rational agents are hard

• Start from the opposite direction

• Use simple trial and error

• Feedback vs Feedforward

• Ramsey Cass Koopmans - RBC - Learning
• IS-LM models
  

• Here

• Zero-Intelligence (Plus)

• Probe and Adjust

• Gjerstad and Dickhaut

• A seller wants to sell \(y^*\) units of a good each day. Today he charged price \(p_t\) and sold \(y_t\) units. How should he sets tomorrow's price \(p_{t+1}\)

• \(e_t = y^* -y_t\)

• \(p_{t+1} = a e_t + b \sum_0^t e_{\tau} d\tau + c \frac{de_t}{d_t}\)

• Trial and Error

• Modular

• Can be extended to buying

• Multiple independent control problems

• Need to set production rates that maximize profits

• Lower frequency

• How to choose production?

• Hill-Climbing

• Marginal Maximizer

• Profits are maximized when marginal benefits equal marginal costs

• \(p_t + \mu_p = w_t + \mu_w\)

• Use a PID with error \(p_t + \mu_p - w_t + \mu_w\)

• PI trial and error produce paired data \(p_t,y_t\)

• Can run a linear regression over them to discover \(\mu_p\)

• Use Kalman Filters

• Sticky prices and price rigidities

• Why are prices sticky?

• A model where sticky prices are superior to flexible ones

• PID seller changes price to elicit a response in the quantity demanded

• Maximization happens at a lower frequency than price changes

• Downstream zero knowledge firms adapt labor slowly to upstream price changes

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• Price rigidities as relative speed
• Leijonhufvud "Keynes and the Keynesians"

• Marshallian firm
• Fixes short term differences in netflow by changing prices
• Maximizes profitability over time by changing production
• Keynesian firm
• Fixes short term differences in netflow by changing production
• Maximizes profitability over time by changing prices
• For this section, assume infinitely elastic labor supply

• I mostly stay clear from macro ABM
• Demand equals wages paid
• No savings

• Where to go from here
• What has been cut out
• Thank you!